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Agriculture hurdle could be insurmountable for U.S., EU negotiators

April 17, 2019

Now that the European Commission has a mandate to negotiate a trade deal with the United States, the next step for the two sides is to agree on what areas the negotiation will cover -- a normally perfunctory exercise that could derail the latest round of trans-Atlantic talks before they even begin.

Since President Trump and European Commission President Jean-Claude Juncker met at the White House last July, the two sides have been at loggerheads over whether a deal will include agriculture. The Commission’s mandate only brings that issue closer to the fore.

The political realities in the U.S. and EU make it unlikely either will back down. U.S. lawmakers and agriculture groups have demanded agriculture be included in the scope of the U.S.-EU talks because without it, a deal will not make it through Congress.

“Elimination of industrial tariffs and non-tariff barriers only get us part of the way there, especially when we face major barriers to agricultural trade in the E.U.,” Senate Finance Committee Chairman Chuck Grassley (R-IA) said on Monday. “Agriculture is a significant piece of the global economy and it simply doesn’t make sense to leave it out. Any deal that eliminates tariffs will need to get congressional approval. Bipartisan members of the Senate and the House of Representatives have voiced their objections to a deal without agriculture, making it unlikely that any such deal would pass Congress.”

“We had high hopes that some of the longstanding concerns regarding the EU’s policies on agricultural biotechnology and on revising the EU’s pesticide laws would be addressed,” American Soybean Association President Davie Stephens said in a statement on Monday. “With the EU now formally excluding ag, it will be difficult if not impossible to address these non-tariff barriers that severely inhibit trade between our countries.”

Politically, however, including agriculture is a non-starter for EU officials who are already facing pressure from member states, European Parliament members and civil society over the prospect of a deal with the U.S.

France opposed the mandate, citing the Trump administration’s withdrawal from the Paris Climate Agreement in doing so, but the country’s agricultural sensitivities also were likely a factor. “I think it was a very symbolic move, but not surprising,” Marie Kasperek, the deputy director of the Global Business and Economics Program at the Atlantic Council, said in an interview. “France is very skeptical of trade deals with the U.S. in general and sensitive of agriculture. They used the pretense of the Paris deal as a moral compass reason for not approving of the mandate.”

“It boils down to agriculture,” said Peter Chase, a senior fellow at the German Marshall Fund in Brussels. The Commission’s mandate explicitly excludes agriculture from the talks, which would have given France cover to endorse the mandate, Chase said. But by citing the Paris Agreement as a reason to oppose the mandate’s adoption, French President Emmanuel Macron could still appear to be protecting France’s agricultural sensitivities even though the Commission was not authorized to discuss agriculture with the U.S., Chase said. Macron also can avoid having to explain why a trade deal with the U.S. won’t hurt French agriculture interests, he added.

'Playing different games'

On Monday, EU Trade Commission Cecilia Malmström told reporters she would contact U.S. Trade Representative Robert Lighthizer about scheduling a first round of trade negotiations, saying that the ball was in the U.S.’ court now. But Kasperek and Chase do not believe conditions are ripe for successful negotiations.

“The two have sat down for a game of cards. Both have laid their cards on the table, but are playing different games,” Chase said. “The U.S. is saying ‘Let’s do TTIP, but in stages.’ The EU has said ‘We only want a deal on industrial goods.’”

Transatlantic Trade and Investment Partnership negotiations stalled in 2016 after the EU and U.S. were unable to reach an agreement on the most sensitive issues, including agriculture, procurement, investor protections and regulatory issues. The Commission’s new mandate says the TTIP mandate, approved by EU member states in 2013, is irrelevant to the current talks.

A statement issued by Trump and Juncker after their meeting last year said the EU and U.S. would seek a deal on non-auto industrial goods. Commission officials have repeatedly pointed to that statement as the basis for talks and the justification for excluding agriculture from the negotiations.

“It has been clear from the beginning -- and I was with the president in the White House -- that agriculture is not in,” Malmström said on Monday in response to a question about U.S. lawmakers’ repeated calls for agriculture to be addressed. “This is a limited but still meaningful win-win negotiation that we are offering and that was agreed to between the presidents so that is what we will do. No more, no less.”

“They’re kind of like two ships passing in the night,” Kasperek said. “Theoretically, we’re ready to negotiate, but realistically we’re not even back to square one where we were in July last year.”

Reasons for optimism

There are reasons to believe the Trump administration could get a deal done with Europe, according to Kasperek and Peter Rashish, a senior fellow at the American Institute for Contemporary German Studies at Johns Hopkins University. Rashish cited two reasons for optimism: The fact that the Trump administration successfully renegotiated the North American Free Trade Agreement and the potential for the U.S. to recognize it needs allies to successfully confront China.

“This administration concluded USMCA after stating it only wanted bilaterals. It shows pragmatism because the renegotiation was successful,” Rashish said. “The other reason you can be optimistic is based on a recognition by the Trump administration that they won’t be able to solve their number-one issue -- China -- alone.”

“There is this very, very slight offset chance that this comes to fruition and we’ll all be pleasantly surprised,” Kasperek said. “The EU is trying to work in good faith and avoid escalation, but avoiding escalation isn’t success.”

The likelihood of a trans-Atlantic deal would depend on whether the Trump administration needed a win, which it may if talks with China and Japan sour, she continued. Alternatively, if Trump doesn’t need a win, he could opt to impose tariffs on autos and auto parts via Section 232, which would escalate tensions with the EU. Trump has repeatedly threatened to hit European cars with tariffs.

“It depends on what happens with Japan and China and the need for a potential win with the EU,” she said. “If other things have been going well and Trump doesn’t see the need to extend this grace period, it might be a better chess move to not impose tariffs and continue with talks. Or it might be better for him to tell his base ‘we need to be tough.’ Already seeing this in his negative rhetoric. It depends on what chess move he needs. Does he need a win?”

The president seems to be leaning toward car tariffs, Kasperek said, pointing to remarks Trump made on Monday at a campaign rally in Minnesota, where he linked negotiating with the EU on agricultural barriers with the potential for auto tariffs.

“The agricultural products -- they barely take our agriculture products,” Trump said. “And yet, they can sell Mercedes-Benz and they can sell anything they want in our country, including their farm products. And it's not fair. And those days are changing rapidly. They understand it.”

“Look, if it doesn't change, we're going to tariff all of your cars and everything else that comes in,” Trump said he told the Europeans. “You can't treat our farmers that way. You can't treat our people that way.”

A rattled trans-Atlantic relationship

But the three analysts said these trade talks may be more contentious than those held in previous years because of the political environment. The trans-Atlantic relationship is being rattled by a series of trade-related conflicts. For instance, the U.S. on Wednesday announced it would fully implement the Helms-Burton Act, which has drawn the ire of the EU and the threat of litigation at the World Trade Organization. Also, EU member states are imposing digital services taxes that the U.S. says are violations of WTO rules and unfairly target U.S. tech companies. Moreover, the decades-long Boeing-Airbus dispute is ratcheting up as both the U.S. and EU have released lists of goods that could be subject to retaliatory tariffs, and the EU is challenging the U.S.’ steel and aluminum tariffs at the WTO.

Bernd Lange, the chairman of European Parliament’s International Trade Committee, recently cited some of these issues in saying that the EU should not negotiate a trade agreement with the U.S. “Starting trade talks with the U.S. government in the current climate is unacceptable," Lange said in a statement last week, according to an informal translation. “The Trump administration is making no attempt to shake its illegal tariffs on steel and aluminum. The U.S. president is louder and louder in his threats of illegal car tariffs and also in the Boeing-Airbus dispute you hear from Washington extremely aggressive tones. Add to that [USTR’s] overdone demands for talks with the EU, which are breaking our red lines in droves. So we cannot possibly have constructive conversations with each other.”

“It is not in the EU's interest to negotiate with Trump under these adverse conditions and against the will of the European Parliament and France,” Lange added.

The Commission also will have difficulty selling a trans-Atlantic trade deal in Europe because of how deeply unpopular Trump is there, according to Kasperek. “Conditions look worse than ever before,” she said. “[Former President] Obama was very liked in Europe. President Trump is not very liked. If Obama couldn’t bring enthusiasm for a trade deal in Europe, how is a president who is not liked going to do it?”

Kasperek pointed to USMCA as another sign that a trans-Atlantic deal was unlikely. Canada and Mexico have not yet ratified the deal and have cited the Trump administration’s refusal to lift Section 232 tariffs on steel and aluminum as one of the reasons. The Commission’s mandate makes the lifting of those tariffs a condition for finalizing a deal with the U.S.

Chase said he expects the talks to be “much more fractious” compared to the tense TTIP negotiations. Rashish acknowledged that the trade and economic relationship between the U.S. and EU was “more contentious than normal,” but held out hope that talks could still succeed.

Leaving ag behind: The only way forward?

The best way to ensure the U.S. and EU can successfully complete negotiations would be to leave agriculture out of the scope of the talks, said Chase, Kasperek and Rashish.

“We have to ask, ‘What happened with TTIP?’” Rashish said. “Ag was one of the last things, along with [investor protections] and procurement. Whether that’s what scuppered TTIP is an open question.”

“A limited scope is the only way for this to work,” Kasperek said, which means excluding agriculture.

Chase said the U.S. and EU should agree that sanitary and phytosanitary issues -- the main market access barriers to U.S. producers in Europe -- should be left to regulatory agencies, but that those authorities should work to address the issues. “My argument is that both sides need to accept that political reality and in accepting that political reality they need to be able to speak clearly to their own understanding on market access and regulatory issues and make sure people understand all regulatory issues are not included in negotiations about trade,” he said. “And if they can be very, very clear and emphatic about that and if the agreement they eventually produce in fact does not go into those regulatory issues, then they can do a trade deal and they can in my mind, simultaneously in a parallel fashion and in a separate track, look at the regulatory issues.”

That would mean the Trump administration would have to convince congressional leaders to endorse an industrial-goods-only agreement as part of a longer process that could lead to resolving some longstanding agricultural issues, such as U.S complaints about the EU’s biotech approval system, Chase said.

“If I’m the administration I say to the members of Congress, 'You need to be patient. If we’re going to solve this problem we need time and we need to build in a systematic approach to addressing the asymmetries between the biotech varieties that are approved for import to the EU,'” Chase said. “’I’ve got this trade agreement that sets up a process that will gradually bring us through this.’ We can beat the Europeans over the head and shoulders all we want. But if the political rejection of what we’re trying to achieve is so strong that no government can withstand it, politicians will need to recognize that.”

Another added wrinkle is the timeline Europe is facing because of upcoming elections. Parliamentary elections are set for May and a new Commission will be installed in October, which is likely to delay any ongoing negotiations for several months. Malmström has said she believes a deal can be completed before then as long as it is limited. A deal completed in less than six months would be one of the fastest ever negotiated. -- Brett Fortnam (

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